A certificate of deposit (CD) is a secure financial tool similar to a savings account, provided by banks, credit unions, and financial institutions. CDs are insured by the FDIC and NCUA up to $250,000, making them low-risk investments.
Certificates of Deposit (CDs)
CDs are products that offer a higher interest rate premium compared to traditional accounts. Investors deposit a lump sum for a fixed period, typically ranging from one month to 10 years.
Most financial institutions offer CDs with varying terms and rates. Penalties for early withdrawals are determined by the issuing bank.
Unlike some investments, CDs provide a secure, fixed interest rate that is often higher than savings accounts. Longer deposit terms yield higher rates, making them an attractive option for savers.
Using a CD to Build Credit
CDs, being fixed-term deposits, can help strengthen one’s credit history. Institutions typically allow borrowing against the CD, up to 95% of its value, which can be reported to credit agencies to improve credit scores.
Timely payments on CD-backed loans can boost credit scores. CDs are secure assets, making them ideal for individuals looking to improve or establish credit.
Main Types of Certificates of Deposit
Various types of CDs are available, including high-yield CDs with above-average rates, jumbo CDs requiring higher deposits, and no-penalty CDs for easy access to funds.
Minimum Balance for a Certificate of Deposit
The minimum deposit for a CD ranges from $500 to $2,000, depending on the institution. Jumbo CDs may require larger deposits, while some CDs have no minimum requirements.
Are Certificates of Deposit (CDs) Ideal for Savings?
CDs are investments rather than standard savings accounts. Early withdrawals may incur penalties, so they are best suited for long-term savings goals.
Opening a CD Account
You can open a CD online or at a bank or credit union. Choose the CD type, term, and interest option, select a financial institution, open the account, and fund it. Brokerage firms also offer CD investment options.